Deloitte to pay $2 million to settle charges over audit rule violations

Sarah N. Lynch

3 Min Read

The Deloitte Company logo is seen on a commercial tower at Gurgaon, on the outskirts of New Delhi August 9, 2012. REUTERS/Parivartan Sharma

WASHINGTON (Reuters) - Deloitte & Touche DLTE.UL will pay a $2 million penalty to settle civil charges that it violated federal audit rules, in one of the largest civil penalties ever imposed by the U.S. audit watchdog.

The Public Company Accounting Oversight Board, which is tasked with policing auditors, said on Tuesday that it was censuring Deloitte for allowing its former partner to continue participating in the firm’s public company audit practice, even though he had been suspended over other rule violations.

The former partner, Christopher Anderson, settled with the PCAOB in 2008 by agreeing to a $25,000 fine and one-year suspension after the watchdog said he violated rules during a 2003 audit of the financial statements for a unit of Navistar International Corp (NAV.N).

A spokesman for Deloitte said the company is pleased the matter has been resolved. “Deloitte takes very seriously all orders and actions of the PCAOB,” the spokesman said.

The penalty matched a record PCAOB fine last year against Ernst & Young.

The PCAOB was created by the 2002 Sarbanes-Oxley Act in response to the accounting scandals at companies like Enron and Worldcom. It sets audit standards, conducts routine inspections and disciplines rule breakers in the audit industry.

The oversight board said on Tuesday it first launched disciplinary proceedings against Deloitte in March, but because of secrecy provisions in the Sarbanes-Oxley law, the board was not able to make them public until now.

“When the board suspends an auditor, it does so to protect investors,” said James Doty, the head of the PCAOB.

“Deloitte permitted the former partner to conduct work precluded by the Board’s order and put investors at risk.”

According to the board, Anderson previously worked as a partner in Deloitte’s Chicago office.

The PCAOB said that Anderson gave Navistar and Navistar Financial Corp a clean audit opinion on its 2003 financial statements, even though $19.7 million in errors, that led to an overstatement of the company’s assets and earnings, had been uncovered.

After he settled the case and agreed to a one-year suspension, the PCAOB said Deloitte placed Anderson into another position that still allowed him to be involved in the preparation of audit opinions.

Allowing a suspended auditor to continue working in that capacity is a violation of PCAOB rules, unless the Securities and Exchange Commission gives the firm permission.

Jonathan Gandal, the spokesman for Deloitte, said that while the audit firm took “several significant actions” at the time of Anderson’s suspension to restrict his activities, “more could have been done” to monitor compliance.

“The robust policies and monitoring procedures we have since instituted fully address the issue and will prevent a similar matter from arising in the future,” he added.